When Partnerships Fray in Venture Capital

By Jim Kerstetter

May 5, 2016

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They say venture capital is a business of connections, of knowing the entrepreneurs with good ideas, the executives who can help those ideas along, and surrounding those people with whatever support they need.

At least, that’s the idea. The downside of all those personal connections is that when things go wrong, they go very wrong.

As Katie Benner reports, Xfund, a venture capital firm, was formed two years ago and manages more than $100 million. It has put money into start-ups like the genetics company 23andMe. But a dispute between its two partners over the firing of an employee ballooned into allegations of abuse, hidden cameras and an investigation by the fund’s investors.

This could be amusing to Silicon Valley haters, a bit of schadenfreude for the type of people who say they are changing the world but more often than not invest in food delivery apps. Except for one thing — the money.

As we glorify or villify venture capitalists, we often forget that they are usually playing with other people’s money. So when they mess up, it’s usually at someone else’s expense. At Xfund, investors had to come up with a way to salvage the fund. In other words, find a way to make sure their money wasn’t flushed down the drain.